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What happens if car sales do crash

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         What happens if car sales do crash

The weakness of car and truck sales during March is getting some observers worried about the prospect of a continued downturn for the auto sector.

Michelle Meyer, an economist at Bank of America Merrill Lynch, looked at the numbers as well, and says there’s a number of worrying factors.

The first is simply that car sales dove in March — falling to a two-year low of a 16.62 million seasonally adjusted annual rate, according to Autodata figures.

In addition, there are worries about “bloated” inventories, which have driven down used-car prices, as well signs of stress in the auto-financing market.

Also read: Here’s why it’s getting harder to ignore rising subprime auto defaults

Meyer modeled what would happen if, instead of the Merrill Lynch assumption that vehicle sales will edge up 2.5% this year, they fell.

In the sharpest decline, a 14.1% nosedive in sales to a 15 million annual rate, there would be drag of 0.42 percentage points on GDP growth. A decline to a 16 million annual rate would exert a GDP drag of 0.23 percentage points. But a decline limited to a 17 million rate wouldn’t really impact GDP at all.

Also read: Tesla surpasses Ford as stock zooms to record

Meyer points out that’s only the direct hit to the economy — there also would be pain from spillovers into parts production, transportation and trade.

In addition, a slowing in auto prices would make it challenging for core inflation to reach the Fed’s roughly 2% target by the end of the year.

“With so much discussion about upside risks to the U.S. economy from potential fiscal stimulus and stronger global growth, potential weakness in autos offers a counterbalance,” she writes.

Also read: What to expect in the jobs report: Slowing growth, faster pay

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